Our Forensic and Valuations team has seen a significant increase in the number of intellectual property (“IP”) valuations being requested for a range of purposes, including FRS102, requiring greater recognition of intangible assets in business combinations.
Reasons for valuing IP include:
- Transferring the IP to another company
- The sale of a company - the value of a company may be its net assets which include IP
- Licencing out the IP to third parties
- As part of business combinations
- For strategic purposes
- To assist with legal disputes
- In securing finance
IP can often be one of the most valuable assets within a company, yet the value and importance are often not fully understood.
Many companies’ most important assets include intangible assets such as their brand. A government report in 2016 stated that UK investment in intangible or knowledge assets has exceeded that for tangible assets since the early 2000s.
Protecting and valuing these assets is a key requirement in order to exploit them. In 2014 the government estimated that only about 53% of UK market sector's intangible investment was protected by Intellectual Property Rights.
Often companies will not recognise their intangible assets separately and sometimes fail to protect them adequately. Identifying and protecting the assets is essential and that’s where clients need their lawyers and accountants to help.
Given the rise of cybercrime, having the right protection in place is becoming increasingly important. Some intangible assets are easier to protect than others, for example trademarks, patents and copyrights are easier to protect than knowhow, customer lists, customer relationships and workforce etc.
In terms of trademark, patent and design protections, there has been speculation around IP laws as a result of Brexit and whether IP will continue to be protected in EU Member States. Not all the facts are known yet but the government maintains that the UK still remains one of the best places in the world to obtain and protect intellectual property (https://www.gov.uk/government/news/ip-and-brexit-the-facts).
In terms of asset recognition, valuing IP can often be complex and requires knowledge of the business and asset. Valuations are often based around earnings, however IP can often need valuing before it has generated any income or profit. This demands an understanding of a variety of IP valuation methodologies, particularly when working with clients with interests in the technology sector - including software developers, digital media firms, telecoms companies, pharmaceutical etc.
The methodology and recognition of IP we apply is often dependant on the financial information available, which often includes significant discussion with management teams.
In summary, for many businesses, IP is fundamental to its success and represents a valuable yet often unrecognised asset. Companies need to ensure adequate protection for their IP, so accurately assessing the value of IP ensures they can maximise its contribution to their businesses.
For further information on this topic, please contact Tom Wacher here.